Buying off the plan is a difficult and protracted process and the contract is usually very complex.
Below is a checklist of some key matters to keep in mind when you are considering buying off the plan:
- Builder - find out who the builder is for the development and check out their previous developments (in terms of quality and reputation). The builder and vendor are usually two different entities.
- Display unit - if there is a display unit available, make sure you examine it carefully and take photos. Note the room sizes and configuration (not just the bedrooms).
- Completion date - ask what is the anticipated completion date for the project. This will allow you to plan your moving in arrangements (especially if you need to sell your current property). The actual completion date is usually later than what the builder or the vendor anticipates.
- Sunset date - check the sunset date under the contract for sale. A sunset date means the date set out in the off the plan contract as the latest date (subject to any extension provided for in the contract) by which the subject lot must be created, the strata plan registered and occupation certificate issued. This can be around 2 (or more!) years form the date that you enter into the contract for sale. Most contracts also give the vendor the ability to extend this date by a further 6 or 12 months. If completion does not occur by the sunset date, the vendor can usually rescind the contract and you will get your deposit back. However, please keep in mind s66ZS of the Conveyancing Act 1919 here which states that the vendor can only rescind an off the plan contract under a sunset clause if each purchaser consents to the rescission or if the vendor has obtained an order of the Supreme Court. This provision was introduced to prevent developers from purposely delaying the development past the sunset date, rescinding the contracts and then re-selling for a higher price.
- Deposit - usually you must pay a deposit which is 10% of the purchase price. You could ask the vendor whether they will accept a deposit which is 5% of the purchase price. Some contracts for sale will allow for your deposit to be released to the vendor between exchange and completion of the contract - try to get such a clause deleted. The deposit should stay in the agent's trust account until the contract has been completed. If you become entitled to rescind or terminate the contract between exchange and completion but the deposit has been released to the vendor, you would have to pursue the vendor to get the deposit back (which will be difficult if the vendor has spent the deposit or the vendor has gone bankrupt).
Strata plan - the contract for
sale must contain a draft strata plan showing the location of the
unit. Consider the location of the unit in relation to views and
common areas (such as lifts).
Sometimes the draft strata plan will not show the allocated car space or storage space or the proposed unit entitlements. This means the location of the car space and storage space are not finalised and may not be in the location which you originally expected.
- Finishes - check the schedule of finishes and fixtures in the contract. This sets out the general inclusions (e.g. appliances, flooring, air conditioning, lighting, window coverings) and the finishes (e.g. colour scheme, brand of paint, tiles, bathroom accessories) for the property. This should be as detailed as possible to avoid arguments on completion.
Changes - between exchange
and completion, the vendor is usually permitted to make a lot of
changes (without consultation with or compensation to the
purchaser). These may include changes to the following -
- schedule of finishes;
- dimensions and area of the property including a reduction in the area or dimensions of the property;
- total number of Lots or numbering of lots;
- location of Lots;
- variation, alteration or omission of a Lot;
- address of the property;
- location of easements or the location of any restriction on use or positive covenant; and
- creation of any easement, restriction on use, positive covenant, lease, arrangement, agreement or right or privilege.
- Defects - the contract should set out the procedure for how defects will be dealt with at the property (before and after completion). After completion, the defects period should be at least 3-6 months.
- GST - when you are buying brand new property, GST must be paid to the Australian Taxation Office on completion of the sale. You should ensure that the purchase price under the contract is GST inclusive to ensure you do not need to pay GST in addition to the price.
- Occupation certificate - the vendor must provide you with a final occupation certificate. Generally, a building cannot be occupied or used (or the use changed) without an occupation certificate.
- Insurance under the Home Building Act 1989 - if your apartment is in a building which is over 3 storeys in height, you will not receive a certificate of insurance under the Home Building Act from the vendor. The contract should state whether insurance will be provided and if the contract is silent on this issue, it should be clarified with the vendor before entering into the contract.
- Construction - stay abreast of the construction process by keeping in touch with the selling agent and request regular updates.
- By-laws - the contract should contain a draft set of by-laws. Make sure you review these so you know the rules which will govern things such as moving in, pets, making changes to your unit in the future and use of common property areas (e.g. pool, garden terrace).
- Stamp duty - this is calculated on the GST inclusive purchase price and is payable by you within 3 months of exchange (if the property is an investment) or within 15 months of exchange (if the property is going to be your principal place of residence).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.